TCI will focus on 15% revenue & 20% profit in FY22: Vineet Agarwal, MD

Vineet Agarwal, Managing Director, Transport Corporation of India (TCI), talks about the demand trends, issues related to the shortage of semiconductor chips and its impact on his business, freight business, strategy to preserve the margins, warehousing capacity and expansion plans, seaways business, national logistics policy and inorganic growth opportunities among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

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Q: What kind of demand trends is visible in the industry? What is your outlook as manufacturing activity has revived a lot and what is the impact for you? Is there any issue related to the supply chain or it is pretty okay to handle it at this point?

A: Due to the first and the second waves of the pandemic created a lot of disruption in the supply chain all over the world as well as in our country. The supply chain was almost broken at certain places. But in the last six months, we are seeing that the growth that is coming in the market is quite good and this growth is led by pent-up demand. There were certain supply-side constraints and now there are demand-side constraints. So, this suggests that there is a lot of growth in the logistics sector because it is directly linked with the GDP. Along with this, we are seeing that there are many sectors in this which are growing from the seasonal aspect. During the pandemic, there was very good growth in agriculture due to which there was very good growth in the sales of tractors, fertilizer and seeds among others. Now, as the festival season is approaching, we are seeing that inventory of many things is increasing due to which the movement of transportation and logistics has increased a lot, like the textile industry, the auto sector and some construction segments. Because before festival people may bring new furniture to their homes, few will paint their houses and get things repaired. Due to these factors, there is a lot of movement in these sectors across India. You would have seen that there is a lot of momentum in the metal sectors and this is naturally because the government spent is quite strong in infrastructure due to which steel, cement, aluminium and many such products have gained good momentum.  

Q: Several auto companies have scaled back production due to a shortage of semiconductor chips. Will this impact your business in the near term?

A: It will not have much impact on our business because our market share in automotive logistics is within 10%, so, it will not have a major impact. But as you have said that it has a huge impact in many sectors, specifically in four-wheeler companies. The sales of two-wheelers have not picked up a lot. Since last month, we are seeing a slight pick-up in the sales of the commercial vehicles, this is seasonal but we also know that there has not been any capacity expansion in the commercial vehicle segment in the last one to one-and-a-half years, so, I do not feel that this impact of a shortage of semiconductors is here to stay for long, hopefully, the automotive sales - in the next two-three months - will improve and come back to its normal trend. 

Q: Your freight business has been consistently doing well. Do you expect that momentum to continue or do you foresee challenges and issues that can come on the way?

A: No, not really because, this freight business is our oldest and most stable business and our brand reputation and knowledge are quite high in the segment. Customers like us because we are quite transparent and our services are present across India, both FTL (Full Truck Load) and LTL (less than truckload). So, it is quite advantageous and due to the national presence, we can serve well to all types of clients. So, this is a very good business and the will continue on the growth trajectory. 

Q: Raw material prices have moved up and rising furl costs are also putting pressure on the margins. Do you have any plans related to price rise and what is your strategy to preserve margins in the future?

A: Some fuel escalation clauses in built-in in most of the contracts in our freight business, for instance, if the fuel increases cumulatively by 5% then our rates also go up. So, it does not have any direct impact on us but there is a lag impact where we do not get it instantly in which the companies at the time say that take this increase from first. So, overall, it will not have any major negative impact on us as mostly it is passed on to the customers. 

Q: What is the current warehousing capacity and what is the expansion plans here? How the seaways business is looking because globally shipping and container rates are surging? What impact it can have soon and what are the prospects of that part of the business?

A: The warehousing business is quite attractive and we have around 12 million square feet of space in the warehouse that is being managed by us nationally. It is amongst the largest and to a great extent, we manage warehouses for e-commerce companies, consumer durable companies, FMCG companies and auto companies nationally. We also run few cold chain warehouses, nationally. As far as seaways business is concerned, we have six ships, which is mostly into coastal shipping. The international freight rates and shortage of containers are not impacting us a lot because we are in the domestic market but it has a had huge impact on the export market because these rates have increased three to four times in many sectors. Containers are not available for international shipping. But as we are into domestic shipping and our ships moves mostly around the Indian coast will not be impacted by it. We want to buy new ships but it is not available because ship prices have risen a lot. 

Q: Government has a special focus on the logistics space and a national logistics policy is being created. Are you looking forward to any inorganic growth opportunities and what are your aspirations in terms of where do you want to reach and what are the preparations for the same?

A: National Logistics Policy will have more focus on multi-model and how the process should be improved and how standardization should happen. We have a huge focus on multi-model and we as a company are already present in shipping as well as we have a joint venture with CONCOR for rail transportation. So, we are into the rail, road as well as in sea and this multi-model will help us. As far as inorganic growth is concerned, it is connected with it and if we get some opportunity then we will examine it but we have a strong focus on multi-model. Secondly, in terms of growth prospects, typically, we will focus at 10-15% top-line this year and our guidance on the bottom line is around 20% bottom line. It is a bit conservative because it will be based on how the market will be if the third wave comes or does not come.